FAR is able to announce this price increase because they use the “Median Sales Price” as their measure. Using a “median” as a principle statistic, especially in a slow market is problematic.
First, consider how median sales price is calculated: FAR takes the list of all homes sold in Broward County during a particular month, sorts them in order of sales price, and then picks the price in the middle as the median (50% of homes sold for more than median and 50% sold for less).
The problem with this measure is it merely shows where sales have been most active. When credit markets tighten, the poor are much more likely to be affected than the rich. Therefore, the poor are much less likely to buy homes. Similarly, when we experience an economic downturn, the poor are also more likely to be affected and are less likely to buy homes. This tells part of the story – the tighter credit markets and the economic slowdown is causing less sales activity among less expensive homes.
A slowdown in investment activity also disproportionately affects sales activity among less expensive homes. Investors are much more likely to take a gamble on a two-bedroom townhouse than a 4000 square-foot, five-bedroom single-family home. So, when investors abandon a market, sales activity among less expensive homes slow more significantly.
That exactly what is happening here in South Florida – expensive homes are still selling to those who are not affected by the economic downturn and the tighter credit markets. At the same time, less expensive homes are no longer getting snatched up by eager investors.
So, what’s a better measure than median sales price? I think that median asking price is a much better measure. Asking prices, although not perfect, tell us much more about the overall market, not just the parts of the market with the highest sales activity.
Median asking price tells a much different story. The median asking price in the Miami MSA (Dade, Broward, and South Palm Beach) fell from $373,475 in June 2006 to $333,500 in June 2007 – a 10.7% decrease. Anyone who follows the local market closely know that this is a much closer approximation of reality that FAR’s claim of a 1% increase.
The following shows the movement median asking price for the Miami MSA (Dade, Broward, and South Palm Beach) since April 2006:
I doubt FAR is going to show off this graph any time soon.
If you're interested in this topic, I found a pretty good article on real estate statistic in a surprising place, the website of Texas Association of Realtors.
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